Is Britain’s hiring engine losing steam?

Another agency gone. Another payroll missed. It’s a pattern I’m seeing far too often, and it’s not about mismanagement — it’s about conditions tightening faster than many can adapt. The industry is feeling the chill long before the frost sets in, and the upcoming Budget on the 29th could decide whether many UK firms make it through the winter.

The data tells a clear story.

According to the Office for National Statistics, vacancies have now fallen for more than 18 months in a row, sitting around 718,000 — well below their post-pandemic peak. The REC/KPMG Report on Jobs shows starting-salary growth cooling and candidate availability rising. Demand is easing, talent pools are deepening, and confidence is slipping.

Meanwhile, SIA’s own article reports the fastest rise in agency closures in 15 years. Even well-run firms are struggling as costs rise and clients stretch payment terms. 

A Perfect Storm of Pressures

Inflation may have fallen from 2024 but remains stubborn — roughly 3.% — while the Bank Rate sits at 4%. For a sector that relies on credit to fund weekly payrolls, that’s punishing. Finance is tighter, costs are up and lenders are cautious.

Add frozen thresholds and stealth tax — quiet fiscal tweaks that raise the burden without shifting the headline rate — and you’ve got a slow squeeze. Recruiters operate on wafer-thin margins. Every tweak in NI, business-rates adjustment and delayed payment cuts straight into profit.

No one expects big giveaways — there’s no fiscal room. But the Treasury still needs money. What will we see? • Frozen thresholds that pull more earners into higher bands. • Narrowed tax reliefs that agencies depend on. • Business-rates recalibration, with tapering relief for shared offices.

But it’s increasingly likely the Chancellor will raise income tax — branded as a “temporary” measure to stabilize the books.

For workers, that means smaller pay packets. For recruiters, it means tougher wage talks as candidates push for rises to offset the hit. Contractor markets will react fastest, with higher rates filtering through to clients. Once again, the cost of employing people — directly or indirectly — edges higher.

The result: a higher effective tax take, delivered both quietly and openly. Add higher funding costs and slower payments, and the pressure compounds fast.

From my perspective as an investor, the direction is clear. The sector is fragmenting, and consolidation is inevitable.

Smaller agencies with low margins and limited credit will struggle to survive another winter of delayed invoices and expensive borrowing. Meanwhile, well-capitalized firms can acquire distressed books, centralize back offices and protect margin through scale.

It’s evolution, not collapse. Expect more project-based contracts and statement-of-work models as clients pay for output instead of headcount.

Offshoring is accelerating too; it’s proving cost-effective without compromising quality. We’ve done this ourselves, and it works.

Automation will separate winners from laggards. Firms investing in AI-driven shortlisting, compliance checks and onboarding can cut up to 15% from delivery costs while keeping consultants productive. Those who resist change won’t last.

Recruitment doesn’t need handouts — it needs predictability and fairness. What would make an immediate impact?

• Payment discipline. Enforce 30-day terms across public-sector and Tier-1 frameworks.
• Business-rates protection. Keep small-business multipliers frozen.
• Targeted hiring relief. Reward job creation through credits, not penalties.
• Regulatory stability. Provide clear IR35 and worker-status guidance — no last-minute rewrites.
• Dialogue. Engage early with industry bodies like the REC and SIA to test real-world impact.

If the Budget quietly raises employment costs, the effect will be fewer jobs, slower growth and less tax revenue — the opposite of what they want. If inflation persists, further BoE rate rises could heap even more strain on a fragile sector.

There’s still reason for optimism.

Despite the headwinds, recruitment remains one of the UK’s most dynamic and entrepreneurial industries.

Every downturn drives reinvention. I’ve seen firms adapt through sharper data, faster tech, and collaboration. The hunger to evolve is there, and the talent in this industry is exceptional.

The Budget won’t change that — but it will decide how much pain we take before recovery. If the government gets the balance right, protecting the hiring infrastructure that keeps Britain’s economy moving, recruitment won’t just survive — it will lead the rebound.

Reference: Staffing Industry Analysts (2025). Is Britain’s hiring engine losing steam? - https://www.staffingindustry.com/editorial/staffing-stream/is-britain-s-hiring-engine-losing-steam-